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Issues: Whether, on the death of one partner and constitution of a new firm with effect from the relevant date, the case fell within a mere change in the constitution of the firm under section 187(2) of the Income-tax Act, 1961, or amounted to succession governed by section 188, warranting two separate assessments.
Analysis: The assessment year was governed by the amended section 187 after insertion of the proviso to sub-section (2) with retrospective effect from 1 April 1975. On that basis, the case was covered by the principle that where the statutory proviso applies to the facts, the matter is one of succession of the firm and not a mere change in its constitution. The Tribunal's view was tested against that amended legal position and found consistent with it.
Conclusion: The question was answered in the affirmative for the assessee and against the Revenue. The Tribunal was justified in holding that the case was not one of change in constitution under section 187(2), and two separate assessments were required.
Final Conclusion: The reference was disposed of by upholding the assessee's position that the firm's reconstitution on the partner's death constituted succession rather than a mere change in constitution.
Ratio Decidendi: Where the amended proviso to section 187(2) applies retrospectively, the death of a partner followed by constitution of a new firm is to be treated as succession under section 188 and not as a mere change in constitution under section 187.
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